The 6 Hidden Costs of Home Ownership
Don't Overlook These Expenses When Buying a House

By RateMarketplace.com Staff

A monthly mortgage is the most obvious home ownership expense. But first-time home buyers often aren't fully aware of the many additional costs of owning a house. Here are six financial factors that prospective home buyers should weigh to budget for the true monthly costs associated with owning a home.

1. Property Taxes

Property taxes are a potentially huge expense that renters do not have to shoulder. Buyers must factor in the cost of property taxes into their financial equation. To determine the tax bite you'll face on a given home, call the local tax assessor's office.

2. Home Owner's Insurance

Mortgage lenders require borrowers to buy home insurance to ensure the property will be rebuilt or repaired in the event of a catastrophe. Home owner's insurance is not tax deductible. You need to account for this expense, which even on a modest $600 annual policy would be an extra $50 a month.

3. Property Maintenance and Repair Costs

This is often an overlooked cost of home ownership. Depending on the value and condition of the home you buy, maintenance and repair costs can easily run 1% or more of the purchase price per year. On a $300,000 home, at 1% per annum, that's another $3,000 in non-deductible annual expenses -- or $250 a month.

4. Utilities

With energy costs rapidly escalating, make sure you weigh the quality and age of heating and air-conditioning systems, insulation and windows in any house you consider purchasing. That includes requesting the present home owner's utility bills for the past 12 months to get an accurate picture of energy consumption through all four seasons.

Energy prices have spiked to where even in a state such as Virginia, with a relatively temperate climate, winter heating costs for a poorly insulated, 1,600-square-foot house with electric-baseboard heaters and single-pane windows can run $500 or more during the coldest months. If a home's energy consumption is especially high, factor in the cost for such upgrades as a high-efficiency furnace, attic and heating-duct insulation and dual-pane windows within the next few years.

Of course, renters generally also pay their own heating and electricity bills. But in buildings with common walls such as townhouses and condominiums, heating costs tend to be much cheaper than in a single-family home of the same square footage.

5. Ancillary Expenses
Many municipalities supply water and trash removal through property-tax revenues -- but many do not. California home owners, for instance, may pay $100+ a month for private garbage-hauling services depending on the size of their household and the trash bins required. Water bills can run a similar amount and are projected to rise in years ahead due to supply-and-demand pressures in many areas, the cost of repairing old deteriorating water mains, and building new ones.
6. Home Owner Fees

Townhouses or condos often charge home owner association (HOA) fees to pay for maintaining common areas such as parking lots and courtyard sidewalks, grounds keeping, and the cost of maintaining and staffing a community clubhouse and pool. Many newer single-family housing developments also employ an HOA model. Along with annual fees, an association may additionally levy one-time special assessments to pay for extraordinary repairs or improvements. One upside is that HOA fees also often cover water and trash-removal costs that many single-family homeowners pay out-of-pocket.

A Silver Lining

One boon that many first-time buyers fail to calculate into their true home ownership costs is the value of the mortgage interest tax break, which varies based on both your federal income-tax bracket and state and local tax brackets. The lower your income, the less the mortgage interest tax deduction will be worth in dollar terms. For a fuller picture of home owner tax breaks, see our RateMarketplace.com mortgage guide, Real Estate Tax Deductions and Credits Explained. If it's financed with a home equity loan or a home equity line of credit, the interest paid on a home improvement loan is also income-tax deductible.

For more information about on determining the true cost of home ownership, visit the following online resources:

•  Top 8 First-Time Home Buyer Mistakes (RateMarketplace.com)

•  The Buy vs. Rent Decision (Yahoo Finance)

•  The True Cost of Owning a Home (Kiplinger.com)

•  The Cost of Buying a Home Over 30 Years (Consumerism Commentary)

•  Owning vs. Renting Calculator (Ginnie Mae)

If you have questions or comments about this article, email the RateMarketplace.com editorial staff at contactus@ratemarketplace.com.

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